Vibo Corporation, Inc. v. Jack Conway

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit Rule 206

File Name: 12a0050p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

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Plaintiff-Appellant, -

VIBO CORPORATION, INC.,

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No. 10-5043

v.

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Defendants-Appellees. -

JACK CONWAY, et al.,

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Appeal from the United States District Court

for the Western District of Kentucky at Louisville.

No. 08-00571—Jennifer B. Coffman, Chief District Judge.

Argued: October 6, 2011

Decided and Filed: February 22, 2012

Before: CLAY, GIBBONS, and WHITE, Circuit Judges.

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COUNSEL

ARGUED: John K. Bush, GREENEBAUM DOLL & McDONALD PLLC, Louisville,

Kentucky, for Appellant. Gary D. Wilson, Washington, D.C., Douglas L. Wald,

ARNOLD & PORTER LLP, Washington, D.C., for Appellees. ON BRIEF: John K.

Bush, Daniel W. Redding, GREENEBAUM DOLL & McDONALD PLLC, Louisville,

Kentucky, for Appellant. Gary D. Wilson, Washington, D.C., Douglas L. Wald, Michael

B. Bernstein, ARNOLD & PORTER LLP, Washington, D.C., Eric Shapland, ARNOLD

& PORTER LLP, Los Angeles, California, Michael Plumley, OFFICE OF THE

KENTUCKY ATTORNEY GENERAL, Frankfort, Kentucky, Irving Scher, Scott

Martin, GREENBERG TRAURIG LLP, New York, New York, Charles S. Cassis,

Theresa A. Canaday, FROST BROWN TODD LLC, Louisville, Kentucky, Stephen R.

Patton, Douglas G. Smith, KIRKLAND & ELLIS LLP, Chicago, Illinois, Robert J.

Brookhiser, Elizabeth B. McCallum, BAKER & HOSTETLER, Washington, D.C.,

Merrill S. Schell, M. Stephen Pitt, WYATT, TARRANT & COMBS, LLP, Louisville,

Kentucky, Eric Estes, OFFICE OF THE ARKANSAS ATTORNEY GENERAL, Little

Rock, Arkansas, David Lapp, OFFICE OF THE MARYLAND ATTORNEY

GENERAL, Baltimore, Maryland, Brett DeLange, OFFICE OF THE IDAHO

ATTORNEY GENERAL, Boise, Idaho, Paul Berks, OFFICE OF THE ILLINOIS

ATTORNEY GENERAL, Chicago, Illinois, Brian D. Devlin, OFFICE OF THE

MICHIGAN ATTORNEY GENERAL, Lansing, Michigan, Douglas A. Bahr, OFFICE

1

No. 10-5043 VIBO Corp., Inc. v. Conway, et al. Page 2

OF THE NORTH DAKOTA ATTORNEY GENERAL, Bismarck, North Dakota, Susan

C. Walker, OFFICE OF THE OHIO ATTORNEY GENERAL, Columbus, Ohio,

Rebekah A. Baker, OFFICE OF THE TENNESSEE ATTORNEY GENERAL,

Nashville, Tennessee, Michael T. Weirich, OREGON DEPARTMENT OF JUSTICE,

Salem, Oregon, for Appellees.

CLAY, J., delivered the opinion of the court, in which GIBBONS, J., joined.

WHITE, J. (p. 23), delivered a separate concurring opinion.

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OPINION

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CLAY, Circuit Judge. Plaintiff VIBO Corporation, Inc., appeals the district

court’s order dismissing its antitrust claims against Defendant tobacco companies, filed

pursuant to the Sherman Act, 15 U.S.C. §§ 1, 3(a); dismissing its constitutional claims

against Defendant Attorneys General, filed pursuant to the Equal Protection Clause of

the Fourteenth Amendment, the Due Process Clauses of the Fifth and Fourteenth

Amendments, and the Due Process, Commerce, and Compact Clauses of Article I;

dismissing its request for relief from the constitutional violations, filed pursuant to

42 U.S.C. § 1983; dismissing its state common law fraud claim; and denying its motion

for preliminary injunctive relief. For the reasons set forth below, we AFFIRM.

BACKGROUND

Plaintiff VIBO Corp., doing business as General Tobacco, filed a Complaint

against sixteen tobacco manufacturers (“Manufacturer Defendants”)1 and fifty-two

Attorneys General (“Attorneys General Defendants”) acting in their official capacities,2

1

Manufacturer Defendants are comprised of two groups of tobacco companies: three companies

who were parties to the original Master Settlement Agreement contested in this suit and thirteen

companies who joined the settlement within ninety days of its execution. These companies include

Lorillard Tobacco Co.; Philip Morris USA, Inc.; R.J. Reynolds Tobacco Co.; Commonwealth Brands, Inc.;

Imperial Tobacco Limited/ITL; Japan Tobacco International USA, Inc.; King Maker Marketing, Inc.; Lane

Limited; Liggett Group, LLC; Lignum-2, Inc.; P.T. Djarum; Premier Manufacturing, Inc.; Santa Fe Natural

Tobacco Co.; Sherman’s 1400 Broadway N.Y.C., Inc.; Top Tobacco, LP; and Vector Tobacco, Inc.

2

The Attorneys General represent forty-six states, four United States territories, the

Commonwealth of Puerto Rico, and the District of Columbia. Jack Conway, the lead named defendant,

is the Attorney General of the Commonwealth of Kentucky.

No. 10-5043 VIBO Corp., Inc. v. Conway, et al. Page 3

alleging federal antitrust and constitutional violations and a pendent state fraud claim.

On January 6, 2010, the district court entered judgment dismissing Plaintiff’s claims

against Defendants for failure to state a claim or lack of subject matter jurisdiction,

denying as moot Defendants’ other motions to dismiss, and denying Plaintiff’s request

for preliminary injunctive relief. See VIBO Corp., Inc. v. Conway, 594 F. Supp. 2d 758,

788–89 (W.D. Ky. 2009).

A. The Master Settlement Agreement

The claims at issue revolve around a November 1998 settlement, the Master

Settlement Agreement (MSA), which was executed to end litigation between several

states and the four largest tobacco companies at the time.3 The litigation involved the

tobacco companies’ advertising strategies, which allegedly misled consumers as to the

harmful and addictive effects of tobacco and inappropriately targeted underage

consumers.

Under the MSA, the Attorneys General of several states agreed to release their

past and future claims against the tobacco companies in exchange for large settlement

payments, future annual disbursements from the tobacco companies managed under an

approved payment scheme, and restrictions on the companies’ future advertising and

marketing schemes. The four original tobacco companies party to the MSA were known

as the original participating manufacturers (OPMs). In addition to releasing their claims

against the OPMs under the MSA, Attorneys General Defendants released claims against

the OPMs’ suppliers, retailers, and distributors. The release provided an incentive for

these businesses to partner with OPMs rather than tobacco companies that had not joined

the MSA, known as non-participating manufacturers (NPMs).

Attorneys General Defendants also wanted NPMs to join the MSA and thus be

subject to its payment and marketing requirements. Thus, the MSA outlined procedures

3

The agreement was originally executed by eight state Attorneys General. Other states joined

the MSA by initiating similar litigation against the tobacco companies in their states’ courts and

subsequently moving the courts to approve their agreed-upon entry into the MSA and dismiss their claims

with prejudice.

No. 10-5043 VIBO Corp., Inc. v. Conway, et al. Page 4

for NPMs to join the MSA despite not being party to the original litigation. If an NPM

joined the MSA, it would become a subsequent participating manufacturer (SPM). In

order to encourage the expedited entry of SPMs into the MSA, any SPM that entered the

MSA within ninety days of its November 1998 execution date was “grandfathered” into

the MSA and had a reduced payment obligation for its future annual payments under the

payment scheme when compared with the payment obligations of non-grandfathered

SPMs. However, by MSA requirement, the OPMs retained the most favorable payment

terms.

In order to induce NPMs to join the MSA and in order to prevent NPMs from

having a market advantage over the OPMs and SPMs that were subject to large MSA

payments and marketing restrictions, the agreement permitted the states to enact

“Escrow Statutes.” These statutes required an NPM to make annual deposits into state

escrow accounts for each state where the NPM sold its products. The escrow payment

amounts were based on each company’s sales in each state. The deposits were held for

twenty-five years, in the event that a state obtained a future judgment or settlement from

that NPM. If no judgment is obtained during that time, the deposit would be released

back to the NPM. For many tobacco companies, especially those selling products in

multiple states, the payment scheme under the MSA was less burdensome than the

payment schedules provided in the Escrow Statutes.

If an NPM joined the MSA later than ninety days after its execution, it would be

required to negotiate an MSA “adherence agreement” with the Attorneys General. After

doing so, it became a non-grandfathered SPM and was subject to higher payment

obligations than the OPMs and grandfathered SPMs. A “back-payment” provision

required every tobacco company that joins the MSA after ninety days of its execution

to make the payments to the states that it would have been obligated to make had it

joined the MSA at the time of its execution. The payment amount was based on the

company’s nationwide sales since 1999. The company also had to make annual

payments going forward, which were based on the company’s national market shares.

These payments were not reduced as were the grandfathered SPMs’ payments. The

No. 10-5043 VIBO Corp., Inc. v. Conway, et al. Page 5

adherence agreement determined the back-payment amount and the annual payment

obligation amount going forward.

The MSA also contained provisions to ensure that the OPMs retained favored

treatment among the other participating manufacturers (PMs). If any adherence

agreement of an SPM provides for more favorable terms for that company than the terms

governing the OPMs under the MSA, then a clause in Section XVIII(b) of the MSA,

entitled “Limited Most Favored Nations” (LMFN), granted the OPMs the right to

receive those same favorable terms. The LMFN clause did not grant any PM the

authority to vote on whether an NPM may become a party to the MSA or to determine

the terms of an adherence agreement. Other provisions in the MSA governed waiver of

constitutional claims, jurisdiction, venue, and arbitration agreements.

B. Plaintiff Becomes a Party to the MSA

Plaintiff entered the tobacco market in 2000, two years after the MSA’s

execution. Plaintiff originally operated as an NPM in a few states, including Kentucky,

Florida, and North Carolina. It paid into state escrow accounts, but the states began to

amend their escrow statutes to make the escrow payments more burdensome.

Ultimately, Plaintiff determined that it would be more profitable to operate as an SPM.

Plaintiff joined the MSA in 2004 by negotiating its Adherence Agreement (AA) with

Attorneys General Defendants. The AA outlined Plaintiff’s mandatory back-payment

amount and the payment amounts it would make going forward. These payment

amounts were determined, in part, based on Plaintiff’s two-percent share in the national

tobacco market (the largest share among NPMs at the time).

According to Plaintiff, during negotiations for the AA, Attorneys General

Defendants failed to explain the extent of the payment reductions granted to

grandfathered SPMs and denied Plaintiff access to this information on the grounds that

other PMs’ payment arrangements were confidential. Plaintiff also claims that it was

assured that Attorneys General Defendants enforced their Escrow Statutes (thereby

confirming to Plaintiff that it would be more beneficial to join the MSA) and that the

No. 10-5043 VIBO Corp., Inc. v. Conway, et al. Page 6

LMFN clause would not prevent Plaintiff’s ability to obtain more favorable terms under

the MSA if it sought to do so at a later date.

After joining the MSA, Plaintiff became dissatisfied with the disparate treatment

afforded the other tobacco companies, such as the lack of back-payments for the OPMs

and the reduced payment obligations available to eligible grandfathered SPMs.

Plaintiff’s per-carton payment obligation to Attorneys General Defendants was higher

than the obligations of the OPMs and some SPMs.

Plaintiff eventually was unable to meet its back-payment obligations and its

payments going forward, as was required by its AA. In an attempt to renegotiate its

position under the MSA, Plaintiff sought to execute an Amended Adherence Agreement

(AAA) with Attorneys General Defendants. The AAA was more favorable to Plaintiff

than the AA because it lessened Plaintiff’s payment obligations. According to Plaintiff,

however, the AAA did not contain more favorable terms than the OPMs or

grandfathered SPMs had under the MSA.

Initially, Attorneys General Defendants were willing to execute the AAA.

However, the PMs learned of the proposed AAA’s terms and sent written notice to

Attorneys General Defendants to remind them of the LMFN clause. Specifically, the

PMs noted that if the AAA contained more favorable terms than the PMs had under the

MSA, the LMFN clause would be triggered and the PMs would seek to receive the

beneficial AAA terms. Attorneys General Defendants requested that the PMs waive any

LMFN rights that they may have if the AAA was executed, but the PMs refused to waive

their rights. Based upon this knowledge, Attorneys General Defendants declined to

execute the AAA with Plaintiff. As a result, Plaintiff remains a party to the MSA

through its original AA.

Plaintiff initiated the present civil action alleging that Manufacturer Defendants

violated two antitrust provisions of the Sherman Act by assisting with the creation of the

allegedly discriminatory MSA and by invoking their allegedly baseless LMFN rights.

Plaintiff also raised claims against Attorneys General Defendants, asserting that the

MSA violates the Equal Protection Clause, Due Process Clause, Commerce Clause, and

No. 10-5043 VIBO Corp., Inc. v. Conway, et al. Page 7

Compact Clause of the United States Constitution. Finally, Plaintiff raised a fraudulent

inducement claim against Attorneys General Defendants for allegedly failing to provide

Plaintiff with material information regarding the payment terms of the other PMs during

its AA negotiations.

DISCUSSION

We review de novo a district court’s grant of a Rule 12(b)(6) motion to dismiss

for failure to state a claim upon which relief can be granted and a district court’s grant

of a Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction. Frank v.

Dana Corp., 646 F.3d 954, 958 (6th Cir. 2011) (considering Rule 12(b)(6) ruling);

EEOC v. Hosanna-Tabor Evangelical Lutheran Church & Sch., 597 F.3d 769, 775 (6th

Cir. 2010) (considering Rule 12(b)(1) ruling). The facts alleged by the plaintiff must be

accepted as true, and those “[f]actual allegations must be enough to raise a right to relief

above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).

I. SHERMAN ACT CLAIMS

Plaintiff challenges Manufacturer Defendants’ actions under two sections of the

Sherman Act, 15 U.S.C. §§ 1, 3(a). The relevant provisions provide that “[e]very

contract, combination in the form of trust or otherwise, or conspiracy, in restraint of

trade or commerce . . . is declared [to be] illegal.” 15 U.S.C. §§ 1, 3(a). Plaintiff alleges

that Manufacturer Defendants’ refusal to waive their LMFN rights, which caused

Attorneys General Defendants to reject Plaintiff’s proposed AAA, constituted a per se

illegal boycott of Plaintiff, a concerted refusal to deal with Plaintiff, and the denial of

Plaintiff’s equal access to an essential facility, namely, the MSA. Manufacturer

Defendants assert that, regardless of the truth of Plaintiff’s allegations, they are

immunized from Plaintiff’s antitrust claims under the Noerr-Pennington doctrine or, in

the alternative, the state-action doctrine.

No. 10-5043 VIBO Corp., Inc. v. Conway, et al. Page 8

The district court found that Manufacturer Defendants were immunized under

both the Noerr-Pennington and state-action doctrines and thus dismissed these claims

under Federal Rule of Civil Procedure 12(b)(6).4 We agree.

A. Noerr-Pennington Immunity

Under the Petition Clause of the First Amendment to the U.S. Constitution,

private actors have the right to petition the government for action. U.S. Const. amend

I (“Congress shall make no law . . . abridging . . . the right of the people . . . to petition

the Government for a redress of grievances.”). Where private actors petition the

government for action that would violate antitrust law, the Petition Clause immunizes

the actors from litigation in connection with their petitioning. Under these

circumstances, private immunization from alleged violations of the Sherman Act is

known as the Noerr-Pennington doctrine. See United Mine Workers of Am. v.

Pennington, 381 U.S. 657 (1965); E. R.R. Presidents Conference v. Noerr Motor

Freight, Inc., 365 U.S. 127 (1961). “The doctrine is an “expression[] of the principle

that the antitrust laws regulate business, not politics,” and is designed to protect

“citizens’ participation in government.” City of Columbia v. Omni Outdoor Adver., Inc.,

499 U.S. 365, 383 (1991). Thus, “‘[w]here a restraint upon trade or monopolization is

the result of valid governmental action, as opposed to private action,’ those urging the

governmental action enjoy absolute immunity from antitrust liability for the

anticompetitive restraint.” Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S.

492, 499 (1988) (quoting Noerr, 365 U.S. at 136). However, private actors remain liable

for anticompetitive activity not associated with government petitioning or antitrust

violations that they directly cause. Id. at 501. “The dividing line between restraints

resulting from governmental action and those resulting from private action may not

always be obvious.” Id. at 501–02.

4

Although the court did not address the merits of the Sherman Act claims, it did note that, with

respect to the LMFN waiver claim, “it is not actually clear that the wrong alleged even falls within the

scope of the Sherman Act.” VIBO Corp., 594 F. Supp. 2d at 775 n.13. Because we agree that

Manufacturer Defendants are immune from Plaintiff’s antitrust claims, we similarly decline to address the

merits of these claims.

No. 10-5043 VIBO Corp., Inc. v. Conway, et al. Page 9

“The Supreme Court has interpreted ‘petitioning’ to encompass activities other

than legislative lobbying. For example, Noerr-Pennington immunity protects private

actors when they file court documents and enter contracts with the government.”

Sanders v. Brown, 504 F.3d 903, 912 (9th Cir. 2007) (citing Calif. Motor Transp. Co.

v. Trucking Unlimited, 404 U.S. 508, 510 (1972), and Greenwood Utils. Comm’n v.

Miss. Power Co., 751 F.2d 1484, 1505 (5th Cir. 1985)). Petitioning also includes the

acts of “negotiating and entering into settlements or other agreements with the

government.” Sanders, 504 F.3d at 912 (citing Campbell v. City of Chicago, 823 F.2d

1182, 1186–87 (7th Cir. 1987)). Some courts have held that a competitor’s conduct of

boycotting constitutes protected petitioning intended to induce government action, so

long as the boycotting is not for the purposes of contracting for higher prices and does

not amount to direct marketplace injury. See Armstrong Surgical Ctr., Inc. v. Armstrong

Cnty. Mem’l Hosp., 185 F.3d 154, 157–60 (3rd Cir. 1999); Sandy River Nursing Care

v. Aetna Cas., 985 F.2d 1138, 1141–44 (1st Cir. 1993); Mark Aero, Inc. v. Trans World

Airlines, Inc., 580 F.2d 288, 296–97 (8th Cir. 1978).

Moreover, the bad intent or anticompetitive motivation of private actors seeking

government action is irrelevant to the application of Noerr-Pennington. Campbell v.

PMI Food Equip. Grp., Inc., 509 F.3d 776, 790 (6th Cir. 2007). This is so because it is

“impracticable or beyond the purpose of the antitrust laws to identify and invalidate

lawmaking that has been infected by selfishly motivated agreement with private

interests[, and it is likewise] impracticable or beyond that scope to identify and

invalidate lobbying that has produced selfishly motivated agreement with public

officials.” Omni Outdoor Adver., 499 U.S. at 383.

Here, Manufacturer Defendants assert Noerr-Pennington immunity from

Plaintiff’s Sherman Act claims because their involvement with the MSA and notice of

their LMFN rights amounted to petitioning. Plaintiff argues that Noerr-Pennington does

not apply because this is not a situation where Manufacturer Defendants petitioned

Attorneys General Defendants for antitrust action, but rather where Manufacturer

Defendants directly violated antitrust law. See Allied Tube, 486 U.S. at 501–02. We

No. 10-5043 VIBO Corp., Inc. v. Conway, et al. Page 10

disagree. Even taking Plaintiff’s factual allegations as true, it is clear that the state

governments’ actions were the actual cause of the alleged antitrust violations. Although

Manufacturer Defendants sent notice to Attorneys General Defendants that they would

not waive their LMFN rights—to the extent that the AAA would trigger the LMFN

clause at all—the LMFN clause itself creates no vote or veto power for the PMs; all

decision-making authority rests with Attorneys General Defendants.5 Moreover,

Manufacturer Defendants’ allegedly selfish motivation in refusing to waive their LMFN

rights is immaterial.

Attorneys General Defendants were free to accept or reject both the MSA and

the AAA, regardless of the explicit or implicit encouragement of Manufacturer

Defendants. They could have executed the AAA and risked the possibility of triggering

the LMFN clause, but they decided that the AAA was not worth that risk. Thus, the

decision not to execute the AAA rested with Attorneys General Defendants. As the

district court noted:

Accepting all of the plaintiff’s allegations as true, the plaintiff has merely

alleged a classic example of a claim for which the Noerr-Pennington

doctrine grants immunity. . . . [P]rivate actors . . . have exerted influence

on the government actors; and, as a result of that influence, the

government actors have declined to sign and execute the [AAA]. . . .

[S]imply put, the [Manufacturer Defendants] have petitioned for, and

received, certain government action that creates anti-competitive effects

upon the plaintiff. Under the Noerr-Pennington doctrine, the defendant

manufacturers are entitled to immunity for the anti-competitive effects

of their successful petition for government action.

VIBO Corp., 594 F. Supp. 2d at 774 (internal footnote omitted). We find this reasoning

to be sound.

5

Plaintiff also argues that the LMFN clause essentially granted veto power to the PMs in

determining whether Plaintiff and Attorneys General Defendants could effectuate the AAA and that the

PMs persuaded or coerced the Attorneys General to reject the AAA. We find no such power founded in

the LMFN clause or the MSA, in general. Moreover, Plaintiff admitted that Manufacturer Defendants have

“invoked” their LMFN rights on prior occasions, but that Attorneys General Defendants ignored the

Manufacturer Defendants’ petitioning in those instances. Plaintiff thus partially recognizes that only

Attorneys General Defendants hold the decision-making power.

No. 10-5043 VIBO Corp., Inc. v. Conway, et al. Page 11

Plaintiff next argues that even if Noerr-Pennington initially applies,

Manufacturer Defendants lose their immunity under the doctrine’s “sham exception.”

The sham exception to Noerr-Pennington prevents the application of immunity where

a defendant’s act of “petitioning” was “a mere sham to cover what is actually nothing

more than an attempt to interfere directly with the business relationships of a

competitor.” Omni Outdoor Advert., 499 U.S. at 380 (citing Noerr, 365 U.S. at 144).

This exception “encompasses situations in which persons use the governmental

process—as opposed to the outcome of that process—as an anticompetitive weapon.”

Id.; N. Ky. Right to Life Comm., Inc. v. Ky. Registry of Election Fin., No. 95-6334, 1998

U.S. App. LEXIS 495, at *17–18 (6th Cir. Jan. 7, 1998); Eaton v. Newport Bd. of Educ.,

975 F.2d 292, 298 (6th Cir. 1992). “A ‘sham’ situation involves a defendant whose

activities are ‘not genuinely aimed at procuring favorable government action’ at all, not

one ‘who genuinely seeks to achieve his governmental result, but does so through

improper means.’” Omni Outdoor Advert., 499 U.S. at 380 (quoting Allied Tube, 486

U.S. at 500 n.4, 507 n.10) (internal citations and emphasis omitted); Knology, Inc. v.

Insight Commc’n Co., LP, 393 F.3d 656, 658–59 (6th Cir. 2004). One “classic” example

of sham petitioning is where a defendant files “frivolous objections to the license

application of a competitor, with no expectation of achieving denial of the license but

simply in order to impose expense and delay.” Omni Outdoor Advert., 499 U.S. at 380.

On appeal, Plaintiff asserts that the “sham” exception applies because

Manufacturer Defendants knew that the AAA did not contain more favorable terms than

the PMs had under the MSA, and therefore did not trigger the LMFN clause, but the

PMs nonetheless “invoked” their LMFN rights. Plaintiff undermines its argument that

Manufacturer Defendants’ petitioning was a sham by admitting that Manufacturer

Defendants actually wanted to prevent the execution of the AAA. Thus, by Plaintiff’s

own admission, Manufacturer Defendants petitioned for a specific outcome from the

government and succeeded; this is the precise situation that falls outside of the sham

exception. See id.; Noerr, 365 U.S. at 144.

No. 10-5043 VIBO Corp., Inc. v. Conway, et al. Page 12

B. State-Action Immunity

Although we find that Manufacturer Defendants are protected from Plaintiff’s

antitrust claims by Noerr-Pennington immunity, we also find that they are protected by

the extension of state-action immunity, in the alternative.

As the Supreme Court decided in Parker v. Brown, principles of federalism and

state sovereignty prevent state governments’ liability under the Sherman Act for their

allegedly anticompetitive action. 317 U.S. 341, 352 (1943); see Omni Outdoor Adver.,

499 U.S. at 370; First Am. Title Co. v. Devaugh, 480 F.3d 438, 444 (6th Cir. 2007). This

doctrine is known as state-action, or Parker, immunity. First Am. Title Co., 480 F.3d

at 444. Where a state enters into an agreement with private entities and is protected by

state-action immunity, that immunity extends to the private entities with whom the state

deals. S. Motor Carriers Rate Conference, Inc. v. United States, 471 U.S. 48, 56–57

(1985); Jackson Tenn. Hosp. Co., LLC v. W. Tenn. Healthcare, Inc., 414 F.3d 608, 612

n.4 (6th Cir. 2005). Although Plaintiff does not raise its antitrust claims against

Attorneys General Defendants, we must first determine whether Attorneys General

Defendants would have immunity against such claims in order to decide whether that

immunity extends to Manufacturer Defendants.6

1. State-Action Doctrine as Applied to Attorneys General

Defendants

The Sherman Act does not apply to states or state officials when acting in their

sovereign capacities. Parker, 317 U.S. at 352. Even where the states act in conjunction

with private parties, they remain entitled to immunity so long as they acted within their

official capacity. Omni Outdoor Advert., 499 U.S. at 374 (noting that there is also no

conspiracy exception to the state-action doctrine). However, if a state acts as a

“commercial participant in a given market,” action taken in a market capacity is not

6

When the district court ruled on the parties’ motions, it was uncertain whether Plaintiff had also

raised a Sherman Act violation claim against Attorneys General Defendants. The court found that, to the

extent a claim was brought against the states, the states were immunized. During appellate argument,

however, Plaintiff’s counsel clarified that it had not brought antitrust claims against Attorneys General

Defendants. Our analysis of the state-action doctrine as applied to Manufacturer Defendants requires that

we consider whether the states are entitled to state-action immunity, but we do so only to adjudicate the

antitrust claims against Manufacturer Defendants.

No. 10-5043 VIBO Corp., Inc. v. Conway, et al. Page 13

protected. Thus, “with the possible market participant exception, any action that

qualifies as state action is ‘ipso facto exempt from the operation of the antitrust laws.’”

Id. at 379 (quoting Hoover v. Ronwin, 466 U.S. 558, 568 (1984)) (internal alterations

omitted).

Plaintiff alleges that Attorneys General Defendants were acting in a market

participant capacity—not a sovereign capacity—in executing and enforcing the MSA

and in refusing to execute the AAA. A state is a market participant when it acts “in a

proprietary capacity as a purchaser or seller with regard to the challenged action” or its

actions “constitute[] direct state participation in the market.” Huish Detergents, Inc. v.

Warren Cnty., 214 F.3d 707, 714–15 (6th Cir. 2000) (quoting White v. Mass. Council

of Constr. Emp’rs, Inc., 460 U.S. 204, 208 (1983)) (internal citation marks omitted). A

state does not become a market participant “simply because . . . [it] labels its actions as

an ‘agreement.’” Huish Detergents, 214 F.3d at 715 (examining a state’s market

participant status in the dormant commerce clause context); see A.D. Bedell Wholesale

Co., Inc. v. Philip Morris Inc., 263 F.3d 239, 265 n.55 (3rd Cir. 2001) (explaining the

relationship of the market participant exception in dormant commerce clause

jurisprudence to an assertion of state-action immunity against a claim related to the

MSA).

Plaintiff does not allege any facts necessary to show that Attorneys General

Defendants were acting as market participants. Plaintiff’s allegation that Attorneys

General Defendants were using their contractual powers when executing and enforcing

the MSA is unhelpful to its claim. See Huish Detergents, 214 F.3d at 715. The Third

Circuit considered this limited issue in a related circumstance, and noted in dicta that

“[i]n joining the Multistate Settlement Agreement, the States did not enter the tobacco

market as a buyer or seller, nor did they assume control or ownership of any entity

within the market. . . . [T]he States’ actions would not fall under the market participant

exception to Parker immunity.” A.D. Bedell Wholesale Co., 263 F.3d at 265 n.55. We

agree.

No. 10-5043 VIBO Corp., Inc. v. Conway, et al. Page 14

We hold that Attorneys General Defendants acted in their sovereign capacities,

and not their market participant capacities, in enacting and enforcing the MSA and in

deciding to forgo the AAA. Therefore, they are protected by state-action immunity.

2. State-Action Doctrine as Applied to Manufacturer Defendants

Where a state is protected by state-action immunity, that immunity extends to

private entities involved in the same course of dealing. S. Motor Carriers Rate

Conference, 471 U.S. at 56–57; Jackson Tenn. Hosp. Co., 414 F.3d at 612 n.4 (noting

that state-action immunity would be worthless if the private parties dealing with the

immunized states were also not protected). Because we have determined that Attorneys

General Defendants are clearly protected by state-action immunity in relation to the

MSA, such immunity extends to Manufacturer Defendants.

Plaintiff, however, points to a refinement of the state-action doctrine articulated

by the Supreme Court in California Retail Liquor Dealers Ass’n v. Midcal Aluminum,

Inc., 445 U.S. 97 (1980). The Court held in Midcal that even where the challenged

restraint is “clearly articulated and affirmatively expressed as state policy[,] . . . the

policy must be actively supervised by the [s]tate itself” for state-action immunity to

apply. Id. at 105 (internal quotation marks and citation omitted); see also Hoover, 466

U.S. at 568–69. In other words, even if the state authorized private parties to engage in

anticompetitive behavior, immunity does not extend to the private actors unless the state

retains active supervision over the private actors. Midcal, 445 U.S. at 105.

The district court found that it need not apply the Midcal test, because

(1) Plaintiff did not allege that the MSA was a law or regulatory scheme arising from a

clear state policy; and (2) even if the MSA was characterized as a state regulatory

scheme, Plaintiff did not allege that the MSA authorizes Manufacturer Defendants to

violate antitrust law. We agree. Even in its subsequent briefing, Plaintiff fails to argue

the threshold issue that the MSA is a regulatory scheme that permits Manufacturer

Defendants to violate antitrust law. It instead argues that Manufacturer Defendants

violated antitrust law when they misinterpreted the MSA and their rights under the

LMFN clause and acted contrary to or in conflict with state supervision. Regardless of

No. 10-5043 VIBO Corp., Inc. v. Conway, et al. Page 15

whether that assertion has merit, Plaintiff has confused the threshold inquiry of whether

the state took action—such as passing a law, regulation, program, or other form of

authorization—permitting the private actors to violate antitrust law, with the subsequent

inquiry as to whether Defendants were acting within the proper scope of state

supervision. Furthermore, we have already found that Attorneys General Defendants,

and not Manufacturer Defendants, were the direct cause of the failed execution of the

AAA. Thus, Plaintiff has not demonstrated the applicability of the Midcal test.

Because Manufacturer Defendants are protected by Noerr-Pennington immunity

and state-action immunity, we find that the district court did not err in dismissing

Plaintiff’s Sherman Act claims for failure to state a claim upon which relief can be

granted.

II. CONSTITUTIONAL CLAIMS

Plaintiff next raises claims against Attorneys General Defendants for violations

of the Equal Protection Clause, the Due Process Clause, the Commerce Clause, and the

Compact Clause. The district court dismissed Plaintiff’s Equal Protection, Due Process,

and Commerce Clause claims as waived under the MSA and dismissed Plaintiff’s

Compact Clause claim for failing to state a claim upon which relief may be granted.

A. MSA Section XV Waiver

Under Kentucky law, which the parties agree governs this issue, contract

interpretation is a question of law, which we review de novo. Noe v. PolyOne Corp., 520

F.3d 548, 551 (6th Cir. 2008); Morganfield Nat’l Bank v. Damien Elder & Sons, 836

S.W.2d 893, 895 (Ky. 1992). Courts interpreting contracts must look to the language of

the agreement to determine the parties’ intent. “When no ambiguity exists in the

contract, [the court] look[s] only as far as the four corners of the document to determine

that intent.” Abney v. Nationwide Mut. Ins. Co., 215 S.W.3d 699, 703 (Ky. 2006).

Whether a contract is ambiguous—in that a reasonable person would find it susceptible

to different interpretations—is also a question of law reviewed de novo. Id.; Cantrell

Supply, Inc. v. Liberty Mut. Ins. Co., 94 S.W.3d 381, 385 (Ky. Ct. App. 2002).

No. 10-5043 VIBO Corp., Inc. v. Conway, et al. Page 16

Plaintiff agreed to be bound by the MSA when it signed the AA. Section XV of

the MSA addresses the possibility of constitutional claims between the parties and

contains a waiver clause. The provision states, in relevant part:

Each Participating Manufacturer further acknowledges that it

understands that certain provisions of this Agreement may require it to

act or refrain from acting in a manner that could otherwise give rise to

state or federal constitutional challenges and that, by voluntarily

consenting to this Agreement it . . . waives for the purposes of

performance of this Agreement any and all claims that the provisions of

this Agreement violate the state or federal constitutions.

MSA Section XV.

Plaintiff and the district court adopted differing interpretations of this waiver

provision. Plaintiff argues that the waiver only prevents it from challenging the

constitutionality of MSA requirements that Plaintiff “act or refrain from acting” in a

manner that may be deemed unconstitutional.7 Plaintiff reads the second clause (the

waiver of constitutional claims) as limited by the first clause (recognition that the

Plaintiff may be required to act unconstitutionally). Plaintiff argues that the waiver does

not bar its claims, because none of its constitutional claims are based on requirements

that cause Plaintiff to act or refrain from acting.

On appeal, Plaintiff asserts that the district court erroneously read the waiver

broadly so as to encompass all constitutional claims rather than only those claims related

to requirements that Plaintiff act or refrain from acting. However, the district court

actually adopted Plaintiff’s limited interpretation of the waiver clause as only applying

to restrictions on Plaintiff’s own actions. See VIBO Corp., 594 F. Supp. 2d at 782. The

difference of interpretation lies in the district court’s broad construction of the phrase

“requirements that Plaintiff act or refrain from acting” to mean “provisions that affect

7

Plaintiff also claims that MSA Section XV only waives First Amendment claims because the

original litigation preceding the MSA involved advertising restrictions. This claim is utterly without merit,

as the waiver language clearly provides for “any and all claims that the provisions of this Agreement

violate the state or federal constitutions” and does not signal that it applies only to First Amendment

claims. MSA Section XV (emphasis added). We look only to the plain language of the agreement to

determine the parties’ intent. Abney, 215 S.W.3d at 703.

No. 10-5043 VIBO Corp., Inc. v. Conway, et al. Page 17

the Plaintiff’s performance under the contract” and its liberal interpretation of what

requirements “affect” Plaintiff’s performance. See id.

Under the district court’s interpretation, it concluded that three of Plaintiff’s four

constitutional claims related to provisions that affected its performance and were thus

encompassed by the waiver. Specifically, the court found that Plaintiff’s Equal

Protection and Due Process claims involved “[t]he MSA’s unequal application of its

purported back-payment requirements, grandfather exemptions and escrow

requirements.” Id. Because the alleged unequal payment scheme affected Plaintiff by

imposing on it obligations higher than those of the other manufacturers, the court found

that these two claims affected Plaintiff’s performance and were therefore waived. In

regard to Plaintiff’s Commerce Clause claim, the district court found that it “involves

a requirement made on the plaintiff” and thus was waived. Id. at 783.

We reject both of these interpretations of the waiver clause. We read Section XV

more broadly than the district court and find that all constitutional claims related to the

MSA are waived, even those not grounded on restrictions to Plaintiff’s own actions.8

Our interpretation is based on a close reading of the language of the two clauses in the

waiver. The waiver, which is outlined in a single sentence, states that each participating

manufacturer “acknowledges that it understands” two things: (1) “that” it may be

required to act unconstitutionally; (2) “and that” it “waives . . . any and all” of its

constitutional claims. The use of “that . . . and that” demonstrates that this sentence has

two separate and equal components. Thus, the second clause is not limited by the first

clause, but rather they are distinct acknowledgments. For Plaintiff to succeed on its

argument that the second clause was to be limited by the first, the language of the waiver

would, at the very least, need more indication that the clauses are co-dependent by using

language such as “that” and “therefore” or “so.” The fact that both clauses are in the

same sentence does not signify that they are co-dependent. Moreover, the second clause

8

Our reading of the waiver provision does not require that we interpret the phrase “act or refrain

from acting” within Section XV. However, we note that the district court’s interpretation of “requirements

that Plaintiff act or refrain from acting” to mean “any provision that affects Plaintiff’s performance”

appears too broad based on a reading of the provision’s plain language.

No. 10-5043 VIBO Corp., Inc. v. Conway, et al. Page 18

contains a clear, broad waiver that Plaintiff has waived “any and all claims that the

provisions of this Agreement violate the state or federal constitutions.”

B. Knowing, Voluntary, and Intelligent Waiver

Plaintiff argues that even if the MSA waiver applies, the waiver was not valid

because Attorneys General Defendants misrepresented certain facts regarding their

enforcement of the MSA and the inability to enter into the AAA without the OPMs’

approval. Specifically, Plaintiff alleges: “(1) that the plaintiff requested specific

information about the extent of the exemptions granted to the grandfathered SPMs but

was denied access to the information on the grounds that it was confidential . . . (2) that

the plaintiff sought assurance that the Settling States were enforcing their Escrow

Statutes and was so assured . . . and (3) that the Settling States represented to the plaintiff

that the LMFN provision of the MSA would not affect the states’ ability to grant the

plaintiff entry into the MSA . . . .”9 VIBO Corp., 594 F. Supp. 2d at 784.

For a waiver to be valid, it must be made knowingly, voluntarily, and

intelligently. Fuentes v. Shevin, 407 U.S. 67, 94–95 (1972). There is a presumption

against waivers of constitutional rights, which can be overcome by clear evidence “that

there was ‘an intentional relinquishment or abandonment of a known right or privilege.’”

Brookhart v. Janis, 384 U.S. 1, 4 (1996) (quoting Johnson v. Zerbst, 304 U.S. 458, 464

(1938)).

Accepting Plaintiff’s allegations of fraud as true, the district court found that the

waiver was nevertheless knowing, intelligent, and voluntary because “[a]ny

misrepresentations by the states as to how diligently [the] states were enforcing their

Escrow Statutes or the impact of the LMFN clause have no relevance to the plaintiff’s

understanding of what rights it was giving up by signing on to the MSA.” VIBO Corp.,

594 F. Supp. 2d at 785. Plaintiff has not alleged that it did not understand that it was

waiving its constitutional claims. The Section XV waiver is clear, and Plaintiff is a

9

These allegations also form the basis of Plaintiff’s fraudulent inducement claim, analyzed infra.

No. 10-5043 VIBO Corp., Inc. v. Conway, et al. Page 19

sophisticated corporation that was represented by counsel in the course of its arms-length

negotiations. The waiver is valid.

Because Plaintiff knowingly, voluntarily, and intelligently agreed to Section XV,

we find all of its constitutional claims, including its Compact Clause claim, properly

dismissed as waived.

III. FRAUDULENT INDUCEMENT CLAIM

Finally, Plaintiff argues that the district court improperly dismissed its fraudulent

inducement claim against Attorneys General Defendants. The district court found that

Attorneys General Defendants were protected by sovereign immunity, so the court

lacked subject matter jurisdiction to review the claim.

The Eleventh Amendment to the U.S. Constitution grants immunity to states

from litigation on state law claims in federal court. U.S. Const. amend. XI; Sossamon

v. Texas, 131 S. Ct. 1651, 1657–58 (2011). A claim against a state officer acting in his

official capacity is deemed to be a claim against the state for sovereign immunity

purposes. Will v. Mich. Dep’t of State Police, 491 U.S. 58, 71 (1989). Fraud is a state

common law claim, and this action was filed in federal court. Plaintiff concedes that

Attorneys General Defendants were acting in their official capacities. Attorneys General

Defendants are thus immune from Plaintiff’s allegations of fraud.

A state may, however, lose sovereign immunity where the state consents to

litigation, where the state is alleged to have acted unconstitutionally, or where Congress

abrogates sovereign immunity. Kovacevich v. Kent State Univ., 224 F.3d 806, 817 (6th

Cir. 2000). In cases of consent, waiver “cannot be implied but must be unequivocally

expressed.” United States v. King, 395 U.S. 1, 4 (1969); United States v. White Mt.

Apache Tribe, 537 U.S. 465, 472 (2003). Waiver occurs “if the [s]tate voluntarily

invokes [federal] jurisdiction, or else if the [s]tate makes a ‘clear declaration’ that it

intends to submit itself to [federal] jurisdiction.” College Sav. Bank v. Fla. Prepaid

Postsecondary Ed. Expense Bd., 527 U.S. 666, 675–76 (1999) (internal citations

omitted). This is a high standard to meet, as courts “will give effect to a [s]tate’s waiver

No. 10-5043 VIBO Corp., Inc. v. Conway, et al. Page 20

of Eleventh Amendment immunity only where stated by the most express language or

by such overwhelming implication from the text as will leave no room for any other

reasonable construction.” Port Auth. Trans-Hudson Corp. v. Feeney, 495 U.S. 299,

306–07 (1990) (internal citations, quotation marks, and alteration omitted).

Plaintiff claims that Attorneys General Defendants consented to litigation on

matters involving the MSA and thereby waived their Eleventh Amendment immunity.

On appeal, Plaintiff asserts four ways in which this occurred, none of which have

merit.10

First, Plaintiff believes there is consent to be sued because the MSA is a contract

between states, and the Supreme Court is the only forum available for disputes between

states. This argument clearly fails, because the present action is not litigation between

states, but between Plaintiff, which is a private party, against several states. Plaintiff

next argues that consent was given since “each State consented to federal court

jurisdiction to hear MSA disputes with the District of Columbia and any of the U.S.

territories that is a party to the agreement because the courts in these jurisdictions are all

federal courts.” This argument also fails because this is a lawsuit by a private party

against states, not between states and the District of Columbia or a territory. We will

not extend consent to federal jurisdiction for disputes with or between other government

entities to consent to federal jurisdiction for cases involving private parties.

Third, Plaintiff argues the existence of consent because the states “acknowledge

the jurisdiction of the federal courts . . . through references to the United States District

Courts for the Districts of Utah and Puerto Rico where the MSA was to be submitted for

approval through a consent decree” per MSA Sections II(p), II(ss), VII, and XIII. We

have reviewed the relevant MSA provisions and find no such consent. Furthermore,

even though Utah and Puerto Rico joined the MSA by filing their consent decrees in

10

We note that the MSA would have permitted the jurisdiction of the Franklin Circuit Court of

the Commonwealth of Kentucky on Plaintiff’s fraud claim. MSA Section VII permits jurisdiction of the

“Court” over disputes, and Section II(p) defines “Court” as the court in each settling state where the

consent decree was presented for approval. In this case, Kentucky’s consent decree was entered by the

Franklin Circuit Court on December 21, 1998. Kentucky’s consent to jurisdiction in the Franklin Circuit

Court obviously does not extend to the federal district court in Kentucky.

No. 10-5043 VIBO Corp., Inc. v. Conway, et al. Page 21

federal courts, the jurisdiction granted under Section VII only applies to the federal

courts of Utah and Puerto Rico, not a federal court in Kentucky. Moreover, such alleged

consent could only be deemed as consent by Utah and Puerto Rico.

Finally, Plaintiff argues that consent to be sued was expressed in MSA Section

XI(c), wherein the states agreed to arbitration that “would be subject to motions to affirm

or vacate in federal court under the Federal Arbitration Act.” This provision is

inapplicable to the present lawsuit, which is not an arbitration. We will not construe

consent to federal arbitration as consent to be sued in federal court for state law claims.

Because Plaintiff has not plausibly stated that Attorneys General Defendants

gave clear and explicit consent to be sued on state law claims in federal courts, it has not

shown that Attorneys General Defendants waived their Eleventh Amendment immunity.

The fraudulent inducement claim was therefore properly dismissed.

CONCLUSION

For the reasons stated above, the judgment of the district court dismissing all

claims against Defendants and denying Plaintiff’s request for preliminary relief is

AFFIRMED.

No. 10-5043 VIBO Corp., Inc. v. Conway, et al. Page 22

_____________________

CONCURRENCE

_____________________

HELENE N. WHITE, Circuit Judge, concurring.

I concur in the majority opinion for the reasons stated in Sections IA, II, and III.